CLW
Clearwater Paper Corporation
stock NYSE

My other value positions are $STLA (car manufacturer) and $JETMF (U.S. airline ACMI/charter). You can take a look at the rationale behind these two in my latest article about my portfolio. These are of course riskier than CLW thus they represent a significantly smaller piece of my portfolio. 

I bought 20% at this price last year, increased my position to 80% on the way to $11.78 bringing my position to a cost basis of $15.18, and then bought 5% more after these earnings as the turnaround is happening/much closer than it was when I bought at a similar price last year. So that’s the why.
The portfolio is about 4 years of my net income. So that’s the size.
On the concentration, I appreciate the idea of uncorrelated returns, but I simply did my homework, saw a huge opportunity, and concentrated my wealth accordingly given the skew to the upside and margin of safety protecting me from the downside.
The increased earnings will stick for as long as somebody doesn’t add novel capacity to the sector, or until demand collapses. The underlying product is somewhat anti cyclical as there is always demand for packaging (food, cosmetics, pharma, etc.), but of course there is some change in demand based on how the economy is doing. The most cyclical part of the business is the commodity price, which is influenced by demand and by supply. Recently a lot of supply was added, in excess of demand, which is what brought trouble to the sector. Now this is fixing itself and the pricing is returning to a more sustainable level, as otherwise Capex is not sustainable in the long run. Converting a mill/building a new one is a multi year project that takes hundreds of millions to a billion and more, which is what it would take for the cycle to go on a downturn again. The economics for that aren’t there yet, as in the price hasn’t gone up enough for somebody to be interested in adding capacity, meaning that for the foreseeable future prices will stay at this level or go higher (the latter being more likely given the improving demand and sticking inflation) thus giving CLW and others good returns for a bunch of years. Then we will see, this is no science so I can’t give you a 100% certain answer.
What I can tell you is that the company was undervalued last year when I bought it, was free money when I bought in April at $11.78 or less than $200M for the entire enterprise, and it’s even more undervalued now than last year because the cycle is already turning and this will soon reflect in earnings and FCF. If you are more risk averse just buy CLW’s bonds. They recently rallied from 80% of par to 90% given the improving conditions but they still offer good upside; 4.75% coupon + trading at 10% below par.
Hope the answer gives you more clarity! Thanks for your thoughtful comment. 

My other value positions are $STLA (car manufacturer) and $JETMF (U.S. airline ACMI/charter). You can take a look at the rationale behind these two in my latest article about my portfolio. These are of course riskier than CLW thus they represent a significantly smaller piece of my portfolio. 

I bought 20% at this price last year, increased my position to 80% on the way to $11.78 bringing my position to a cost basis of $15.18, and then bought 5% more after these earnings as the turnaround is happening/much closer than it was when I bought at a similar price last year. So that’s the why.
The portfolio is about 4 years of my net income. So that’s the size.
On the concentration, I appreciate the idea of uncorrelated returns, but I simply did my homework, saw a huge opportunity, and concentrated my wealth accordingly given the skew to the upside and margin of safety protecting me from the downside.
The increased earnings will stick for as long as somebody doesn’t add novel capacity to the sector, or until demand collapses. The underlying product is somewhat anti cyclical as there is always demand for packaging (food, cosmetics, pharma, etc.), but of course there is some change in demand based on how the economy is doing. The most cyclical part of the business is the commodity price, which is influenced by demand and by supply. Recently a lot of supply was added, in excess of demand, which is what brought trouble to the sector. Now this is fixing itself and the pricing is returning to a more sustainable level, as otherwise Capex is not sustainable in the long run. Converting a mill/building a new one is a multi year project that takes hundreds of millions to a billion and more, which is what it would take for the cycle to go on a downturn again. The economics for that aren’t there yet, as in the price hasn’t gone up enough for somebody to be interested in adding capacity, meaning that for the foreseeable future prices will stay at this level or go higher (the latter being more likely given the improving demand and sticking inflation) thus giving CLW and others good returns for a bunch of years. Then we will see, this is no science so I can’t give you a 100% certain answer.
What I can tell you is that the company was undervalued last year when I bought it, was free money when I bought in April at $11.78 or less than $200M for the entire enterprise, and it’s even more undervalued now than last year because the cycle is already turning and this will soon reflect in earnings and FCF. If you are more risk averse just buy CLW’s bonds. They recently rallied from 80% of par to 90% given the improving conditions but they still offer good upside; 4.75% coupon + trading at 10% below par.
Hope the answer gives you more clarity! Thanks for your thoughtful comment. 

Thank you! Of course the $50/share TBV is just a simplification, and my analysis went much deeper than that. CLW had all the right cards to wait out the cycle, even though in the end it didn’t even need to use them all as the recovery is playing out even faster than I expected. This market is looking like it has the potential to turn right. Utilization back to 95% would be bonkers, that’d be $75+ a share.

It’s already turning. SBS prices by RISI increased in June, all players in NA announced price hikes, and CLW and SW (which are sold out) announced a second hike.

Yeah I’ve looked at all CLW’s competitors. The reason I stuck with CLW is that it is the most undervalued and has the biggest margin of safety compared to peers. All the others such as Sappi, Smurfit Westrock, Graphic Packaging, International Papers, and so on just seemed fairly priced.